isi 2009

Posted by seema on Apr 17, 2012; 7:00pm
URL: http://discussion-forum.276.s1.nabble.com/isi-2009-tp7474636.html

6. Consider an industry with 3 firms, each having marginal cost equal to 0. The
inverse demand curve facing this industry is p = 120 − q, where q is aggregate
output.

• (iii) Firms 2 and 3 decide to merge and form a single firm with marginal
cost still equal to 0. What output do the two firms produce in equilibrium?
Is firm 1 better off as a result? Are firms 2 and 3 better off post-merger?
Would it be better for all the firms to form a cartel instead? Explain in
each case.

When all three firms merge, how are they better off ?